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Weekly Economic Commentary

Monday April 23, 2018

Risk sentiment stabilised last week as markets seemed more comfortable with the US/China trade situation and geopolitical tensions cooling with a belief that the Syrian air strikes will be an isolated event. Investors shifted their focus back to fundamentals.

For the first time, the release of the RBA board minutes last week explicitly acknowledged that “members agreed that it was more likely that the next move in the cash rate would be up, rather than down.” Of course this is not exactly new information but the fact that it was “written” was an interesting development. The minutes also added that “there was not a strong case for a near-term adjustment in monetary policy” given the slow progress on unemployment, wages and inflation objectives. Market reaction to the minutes however was insignificant.

In a publication released last week, the International Monetary Fund is forecasting solid 3.9% growth in the global economy for the next two years but will fade thereafter as central banks tighten monetary policy, the US fiscal stimulus subsides and China's gradual slowdown continues. "The first shots...have now been fired," chief economist Maurice Obstfeld said ”Tit-for-tat trade sanctions could also derail the expansion”.

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